Question

Economic efficiency is how economists assess the desirability of outcomes. Discuss the two requirements for efficiency in a market economy. Provide an example of current businesses.

Answer 1

Economic efficiency refers to the efficient allocation of resources in the economy so that the economy can produce its maximum output. There are many requirements of the efficiency in the market based economy. The first requirement is the application of fair competition where everyone gets the opportunities to produce and no any bigger firm exerts market power or monopolization to drive the smaller players out of the market. It will be truly driven by the market forces. The second requirement is the promotion and protection of private property rights with minimal government intervention. The government should not impose upon the market, rather take initiatives for the efficient function of the economy.

The examples can be drawn from the US economy where market concentration beyond the certain level is examined by the bodies so that fair competition is maintained. The government has passed different laws such as Sherman Act to prevent the monopolization and maintain the fair competition. Further, private property rights are promoted and it is the reason that every year, there are numerous cases of patent filing and applications. It bring efficiency to the market. Government also does not intervene unnecessarily upon the firms.